SIGNS of another gruelling year ahead for British Airways yesterday took the gloss off better-than-expected annual results from the battered airline.

BA posted pre-tax profits of &#xA3;135m - higher than City hopes - after racking up losses of &#xA3;200m in the previous 12 months.

But BA also revealed it lost &#xA3;200m in the last three months of the financial year to March 31 as Sars and the Iraq crisis hit demand.

Those problems continued into the new financial period, meaning the airline's first quarter revenues figure is unlikely to beat last years.

On top of difficult trading conditions, BA said its pension fund deficit had soared to &#xA3;1.2bn after stock prices tumbled. It will learn later this year if it has to increase contributions to its 101,000 member schemes.

Investors were also told for a second year running that they will not receive a final dividend. The impact of the September 11 attacks in America put paid to last year's bonus.

BA shares reacted poorly to yesterday's results, falling 3% despite the boost offered by the pre-tax profit figure. Analysts are already expecting BA to fall back into the red in the current financial year.

Hilary Cook, director of investment strategy at Barclays Private Clients, said, "The lack of a dividend speaks volumes. This is a company which is desperate to conserve cash.

"The first quarter was pretty dire and the company can't see much beyond that. It does not make pretty reading."

BA has already pledged to step up the cost-cutting programme which has so far produced annual savings of &#xA3;570m - &#xA3;120m better than expected.

The airline wants additional savings of &#xA3;450m from a 10% reduction in spending and the adoption of a more "self-service" culture for staff and customers.

However, no extra job cuts are planned to add to the 13,000 which will have been lost by September as part of the company's Future Size and Shape review.

That programme was credited with putting BA back into the black during another turbulent year for the airline industry.

Chief executive Rod Eddington said, "These are good results in one of the toughest years in living memory. However, we cannot be complacent.

"Our priority is to get people back flying but we realise we are flying into a stiff headwind."